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SMB IT Spending Unplugged

Small they may be but the Indian SMB (small and midsize business) segment plays a key role in driving the country's industrial development. SMBs have a critical role on promoting entrepreneurship and employment opportunity in India, however IT adoption among them is still relatively in the lower side. In terms of employment generation SMBs are second only to agriculture in India indicating towards the significant role of the segment in the overall Indian Economy. India has a huge base of SMBs, according to some estimates almost 90%, in terms of number, of the Indian commercial establishments can be classified as SMB. Not only that, 40% of the total manufacturing output in terms of value is contributed by the SMBs in India.

      

It's true that SMBs are the focal point of every IT vendors in India specific strategy. Which, is due to the fact that today's SMBs are technology hungry. Despite the cost pressure and constraints the SMBs have started realizing that in order to attain operational efficiencies and competing in the market it is imperative to invest in a robust IT infrastructure. SMBs want customized solutions and products that cater to their unique requirements. This has led to an increase in the IT spending among SMBs.

      

There are certain trends which are inherent to the SMB IT spending and should be taken into account while assessing the SMB opportunity in India

 

  • One of the most prominent trend is propensity to focus on their own business and let the vendors and services provider take care of the IT infrastructure. Which has resulted in significant opportunity as far as IT infrastructure management services is concerned.
  • IT infrastructure is not yet perceived as a business enabler and is still considered as a cost center which is the reason why a SMB has a much greater expectation from every single rupee spent on IT infrastructure which essentially means that they want to spend les and expect more
  • With unique requirements that demand full capabilities without complexity, SMB customers seek practical solutions with quick return on invest

     

 

Majority of the SMB spending on IT is still being made by the SMBs in metros. This is contrary to the popular belief that the up country SMBs is poise to overtake the spending made by its Metro and Mini Metro counter parts.

 

The level of IT maturity among the SMBs in the metro and mini metros are driving the IT spending where as the SMBs in upcountry are still at the stage of basic IT infrastructure set up and augmentation.

 

Top 8 cities in India contribute to more than 80% of the total SMB IT spending in India. Delhi leads the pack as far as the SMB IT spending is concerned followed by Mumbai, Bangalore and Hyderabad. Among all the cities having a SMB IT spending of more than USD 20 M, Nagpur is the fastest growing city followed by Chandigarh. Other prominent cities in terms of growth are Surat, Vizag and Ludhiana. Among the four metros Delhi is the fastest growing city in terms of SMB IT spending followed by Kolkata.

 

Majority of the investment made by the SMBs is on hardware, as almost three quarters of the total spending is made on hardware purchase. Services and software contribute rest of the IT spending. Software still is not one of the major areas of focus as far as IT spending by SMBs are concerned.

 

Most of the spending made by SMBs on hardware is on computing infrastructure and networking. PC and Laptop contributes to the majority of the IT spending followed by networking and servers. Half of the total hardware spending is made on PCs and Laptops whereas around 15% of the total hardware spending is made on networking. Servers contribute 10% of the total spending. Printers and Peripherals contribute around 8 to 10 % of the total hardware spending.

 

Similarly on the software front primarily the investment is made on the infrastructure software as more than 60% of the revenue is made on infrastructure software. The SMBs has started investing on applications as almost one fourth of the total investment on software is being made on applications. ERP is the major application on which the investment is being made. Other applications which are also popular among the SMBs are HR application, financial applications, etc. Applications such as CRM are primarily being adopted by the financial services companies. Middleware has not really picked up among the SMBs however there is a distinct trend towards messaging and collaboration as well as security software.

 

As far as the services are concerned, SMBs are investing more infrastructure management services which include both AMC and complete IT infrastructure outsourcing services. Infrastructure management services contribute half of the total spending on services. With the growing adoption of ERP and other applications among the SMBs investment on system integration services is also increasing and it now contributes one fourth of the total spending on services.

 

The SMBs in India have now realized that IT is not just a business enabler but a survival tool as far as remaining competitive and ensuring profitability is concerned. This change in mindset has opened window of opportunity for IT vendors to focus on solutions and services which are low on Capex and high on instant RoI.